2. Israel’s Economy – Main Characteristics Export Oriented Growth Rapid Development of Technology & High-Tech Industries Entrepreneurial Culture Supportive Environment for Business Investment & R&D Incentives

3. Facts & Figures Foreign Trade Industry Doing Business in Israel Benefits & Investments Contents:

4. Facts & Figures

5. 2004200320022001Criteria 117.6110.4104.2113.6GDP (current prices in B$) 4.3%1.3%-0.7%-0.9%GDP Real Growth rate (%) 17.316.515.917.6GDP per Capita (current prices, 000’$) 2.5%-0.5%-2.7%-3.2%GDP per Capita Growth rate (%) 50.538.437.035.0Exports of Goods & Services (B$) 57.744.345.642.7Imports of Goods & Services (B$) 10.4%10.7%10.3%9.3%Unemployment Rate (%) 1.2%-1.9%6.5%1.4%Inflation Rate ( CPI, end of year) 0.4%0.5%-1.5%-1.7%Current Account (% of GDP) Source: Central Bureau of Statistics, Bank of Israel Main Economic Indicators

6. 2005F200420032002Criteria 123.2117.6110.4104.2GDP (current prices in B$) 5.1%4.3%1.3%-0.7%GDP Real Growth Rate (%) 17.917.316.515.9GDP per Capita (current prices, 000’$) 3.2%2.5%-0.5%-2.7%GDP per Capita Growth Rate (%) 53.850.538.437.0Exports of Goods & Services (B$) 60.257.744.345.6Imports of Goods & Services (B$) 9.1%10.4%10.7%10.3%Unemployment Rate (%) 2.8%1.2%-1.9%6.5%Inflation Rate ( CPI, end of year) Source: Central Bureau of Statistics, Bank of Israel, Forecast: Ministry of Finance June 2005 Main Economic Indicators and Forecast Facts & Figures

7. Source: Central Bureau of Statistics *Estimation GDP and GDP per Capita (Annual % Change, in Constant Prices) Facts & Figures

8. Source: Central Bureau of Statistics, Bank of Israel *Estimation Business Sector GDP Growth (Annual % Change) Facts & Figures

9. Source: Central Bureau of Statistics, Bank of Israe l *Estimation Major GDP Components (Annual % Change, in Constant Prices) Facts & Figures

10. Source: Central Bureau of Statistics, Bank of Israel Exports of Goods and Services (B$) 45.6 39.9 38.3 42.4 50.5 Facts & Figures

11. GDP Growth and Exports Growth (Cumulative Rate of Growth by Period) Source: Central Bureau of Statistics, Bank of Israel Facts & Figures

12. Source: Ministry of Finance, 2005 General Government Expenditure (% of GDP) Facts & Figures

13. Source: Ministry of Finance, 2005 Gross Tax Burden (% of GDP) Facts & Figures

14. Source: Ministry of Finance, 2005 Budget Deficit (% of GDP) Facts & Figures *Forecast, Including the Disengagement Program Expenses

15. Current Account (% of GDP) Source: Bank of Israel Facts & Figures

16. Net Foreign Debt (% of GDP) Source: Bank of Israel Facts & Figures

17. Foreign Direct Investment (B$) Source: Bank of Israel High-Tech Boom High-Tech Bubble Burst Facts & Figures *Forecast

18. Inflation Rate (% Change in CPI, end of year) Source: Economist Intelligence Unit, Bank of Israel Facts & Figures *Forecast

19. Unemployment Rate by Quarters* (% of Total Labor Force) *Seasonally Adjusted Data Facts & Figures Source: Central Bureau of Statistics, Bank of Israel

20. New Employed Persons in 2004 (Change in Israeli Employed Persons, in Thousands) Source: Central Bureau of Statistics, Manufacturers’ Association of Israel Facts & Figures

21. Central Bureau of Statistics*Criteria 5.1%Real GDP Growth 6.4%Business GDP Growth 6.5%Exports Growth 3.5%Private Consumption Growth 4.3%Government Consumption Growth 0.3%Investment in Fixed Assets Growth *Published: September 2005 Estimated Growth of Main GDP Components 2005 Facts & Figures

22. Central Bank Interest Rates-Israel vs. USA (%) Source: Bank of Israel, Federal Reserve Facts & Figures Bank of Israel Rate Federal Reserve Rate

23. Source: Credit Rating Agencies Israel’s Credit Rating 1992-2005 A1/A+ A2/A A3/A- Baa1/BBB+ Baa2/BBB Baa3 /BBB- Facts & Figures

24. Source: World Economic Forum, GCI 2004 Growth Competitiveness Index, 2004 Israel Ranks 19 Out of 104 Countries (2003 Rank was 20) 66 60 48 47 41 37 27 23 21 19 15 13 11 7 1 46 Facts & Figures

25. Source: World Economic Forum, GCI 2004 Business Competitiveness Index, 2004 Israel Ranks 21 Out of 103 Countries (2003 Rank was 20) 55 52 47 41 30 26 24 22 21 13 12 8 6 3 1 34 Facts & Figures

26. Source: The Global Competitiveness Report 2004-2005 Core Technology-Innovating Economies, 2003 Israel Ranks 4 Out of 103 Countries Facts & Figures 1 2 3 4 5 6 7 8 9 10

27. Foreign Trade

28. In 2004, the Export Sector’s share in the total GDP growth was about 60%, making it the main contributor of GDP growth. EXPORTS: The Engine of Israeli Growth Foreign trade

29. Trade of Goods and Services (B$) Foreign trade Source: Central Bureau of Statistics, Bank of Israel *Estimation

30. Trade Deficit (B$ and % of Exports) Foreign trade Source: Central Bureau of Statistics, Bank of Israel *Estimation

31. *Note: Trade of Goods (exc. Diamonds ) Annual Trade* Growth Foreign trade Source: Central Bureau of Statistics, Bank of Israel

32. Exports as a % of GDP Foreign trade Source: Central Bureau of Statistics, Bank of Israel, Israel Export & International Cooperation Institute, Ministry of Finance *Forecast

33. Exports of Goods by Commodity Group, 2004 (% of Total Exports of Goods) The High-Tech Sector Accounts for 33% of Total Exports of Goods Foreign trade Source: Central Bureau of Statistics, Bank of Israel

34. The Growth of Industrial Exports (B$) Foreign trade Source: Central Bureau of Statistics, Bank of Israel 23.7 19.5 15.5 8.6

35. Exports of Goods by Region 2004 (exc. Diamonds) Foreign trade Source: Central Bureau of Statistics, Bank of Israel

36. Imports of Goods by Region 2004 (exc. Diamonds) Source: Central Bureau of Statistics, Bank of Israel Foreign trade

37. Israel’s Main Trading Partners, 2004 (inc. Diamonds) 2.1 4.0 4.5 7.0 20.2 2.4 2.2 2.7 3.1 2.1 3.5 Source: Central Bureau of Statistics, Bank of Israel Foreign trade

38. Israel’s Main Trading Partners, 2004 (exc. Diamonds) 1.2 2.4 2.7 2.8 4.4 1.7 1.8 2.0 12.3 1.3 2.1 1.1 2.0 Source: Central Bureau of Statistics, Bank of Israel Foreign trade

39. Source: Global Trade Information Service (GTIS) Growth Rate of Commodity Exports by Selected Countries, 2003-2004 (% of Change) Foreign trade

40. Source: OECD - Organisation for Economic Co-operation and Development Real Growth in Exports of Goods and Services - International Comparison (Annual Average for 1999-2003) Foreign trade

41. Medium High-Tech Export Development (B$) Source: Central Bureau of Statistics, Bank of Israel Foreign trade 6.2 5.1

42. Medium Low-Tech Export Development (B$) Foreign trade Source: Central Bureau of Statistics, Bank of Israel 4.5 3.6

43. Low-Tech Export Development (B$) 1.8 2.0 Source: Central Bureau of Statistics, Bank of Israel Foreign trade

44. Industry

45. Selected Indicators in Industry, 2001-2004 (Real Annual Change, Yearly Average) Source: Central Bureau of Statistics, Manufacturers ’ Association of Israel

46. Industrial Production and Exports (Real Cumulative Rates of Change) Source: Central Bureau of Statistics, Bank of Israel Industry

47. Labor Productivity in Industry, 2000-2004 (Real Annual Change) Source: Central Bureau of Statistics, Manufacturers ’ Association of Israel Industry

48. A High-Tech Oriented Industry - Source: Central Bureau of Statistics, Manufacturers ’ Association of Israel Industry The Israeli Industry is Undergoing Long Term Structural Changes (Industrial Output Distribution 1994, 2004)

49. The High-Tech Sectors led Industrial Growth in 2004 (Real Annual Change) Source: Central Bureau of Statistics, Manufacturers’ Association of Israel Average 7% Industry

50. The High-Tech Sectors Recruited the Largest Number of Persons in Industry in 2004 (Real Annual Change) Source: Central Bureau of Statistics, Manufacturers’ Association of Israel Average 1.1% Industry

51. Israel’s Major High-Tech Exports 2004 Source: Israel Export & International Cooperation Institute, Israel Association of Software Houses Total High-Tech Export (Including Software): 14 B$ Industry

52. Israeli High-Tech Exports by Geographic Breakdown 2004 Source: Israel Export & International Cooperation Institute, Central Bureau of Statistics Industry

53. Expenditure on Civilian R&D in Israel & in Selected OECD Countries (% of GDP, 2002) Source: Central Bureau of Statistics, Bank of Israel Industry

54. Qualified Engineers Index Source: Institute for Management Development World Competitiveness Yearbook- 2004/5 Industry

55. Technology Index, 2004 Source: World Economic Forum, GCI 2004 Israel Ranks 8 Out of 104 Countries Industry

56. Israel’s ICT* and Business Sectors Product 2004 (Annual Growth Rate %) *ICT: Information & Communication Technologies Source: Central Bureau of Statistics, Bank of Israel Industry

57. Software and Electronic Industries (Israel & the World Growth Rates 1994-2004) Source: Israel Association of Electronics and Information Industries Industry

58. Israel’s Software Exports (B$) Source: Israel Association of Electronics and Information Industries Industry

59. Israel: A Major Player in the Global Biotechnology Industry Sales from the Biotech sector generated 1.8 -2.3 US B$ in 2004. Israel's share in global Biotechnology sales is about 2.5%. There are 23 Technological Incubators in Israel, more than 20% of them are Involved in Biotechnology projects. Source: Israel's Ministry of Science Industry

60. Biotechnology Industry

61. Start-Ups – The Emerging Economic Force Industry Israel Enjoys the Highest Concentration of High-Tech Companies Outside of the Silicon Valley “ ” Robert Greifeld President & CEO NASDAQ 2004

62. Investments in High-Tech Companies 2004 Source: IVC - Israel Venture Capital YearTotal in $ B 19991.1 20003.2 20012.0 20021.1 20031.0 20041.5 Industry

63. Capital Raised by Israeli VC Funds (M$) Source: IVC - Israel Venture Capital *Forecast Industry

64. VC Investments in Israel & Europe (M$) Source: PWC - Price Waterhouse Cooper, May 2003 Industry

65. High - Tech Source: IVC - Israel Venture Capital Capital Raised by Israeli High-Tech Companies by Sectors (%) Industry

66. Israel’s Life Sciences Industry – Sectors 2004 Source: Israel Life Sciences Industry 2004 Industry

67. Israel’s Biotech Companies – Subsectors 2004 Source: Israel Life Sciences Industry 2004 Industry

68. Doing Business In Israel

69. Foreign Investment in Israel At the crossroads of three continents – Europe, Africa and Asia – Israel enjoys an excellent reputation as a technologically advanced economy, which has made it a prime destination for investment by multinational corporations

70. Doing Business In Israel Cooperation Between the Academy and Industry (1= minimal or nonexistent, 7= intensive and ongoing) Source: World Economist Forum 2004/5

71. Doing Business In Israel Over 20 Israeli Companies are Traded on the London Stock Exchange Source: http://www.maarivintl.com/ Israel is ranked 2nd after Canada in the number of foreign companies traded on the American Technology Stock Exchange. Israel is second in the world in the number of companies of a foreign nation traded on Wall Street.

72. Doing Business In Israel Number of Companies Traded on NASDAQ – Selected Countries Compiled from NASDAQ data

73. Doing Business In Israel Recent M&A TimeSumAcquirerTechnology Israeli Company 09/2005$345MArisCommunications Terayon Communication Systems Inc. 08/2005$230MHPPrinting Scitex Vision Ltd. 07/2005$122MCiscoCommunications Sheer Networks Ltd 07/2005$84MBroadcomCommunications Siliquent Technologies Inc. 07/2005$42M West Pharmaceutica l Services Inc. Life Sciences Medimop Medical Projects Ltd. 06/2005$105M McKesson Corp. Life Sciences Life Sciences Medcon Telemedicine Technology Ltd. 06/2005$620MeBayInternet Shopping.com

74. Doing Business In Israel Recent M&A (cont.) TimeSumAcquirerTechnology Israeli Company 05/200580M$ Johnson & Johnson Healthcare Impulse Dynamics 05/2005~85M$Broadcom Semiconductors Fabless Siliquent 04/2005 228M$ UGS CorpSoftwareTecnomatix 03/200568M$ Juniper Networks Voiceover InternetKagoor 03/200580M$ Ferring Holding SA BiopharmaceuticalSavient 03/200551M$Kodak Medical Equipment OREX Radiography 03/2005~50M$AlcatelCommunicationNative Networks 03/2005100M$Intel Processors for Digital Display Devices Oplus Technologies 02/2005 150M$ Agere Systems Semiconductors Fabless Modem-Art

75. Doing Business In Israel E-Readiness Score, 2004 Source: World Economic Forum, GCI 2004

76. Doing Business In Israel Foreign Companies Invested in Israel (Examples) US Microsoft Pratt & Whitney AOL Time Warner Intel IBM Boeing Enterprises Cisco Systems GE Lucent 3Com Hewlett Packard Merrill Lynch Motorola Sun Microsystems Europe Siemens DaimlerChrysler Volvo Cable & Wireless Baan Volkswagen Deutsche Telecom L’Oreal British Telecom Danone Ares Sereno Unilever Asia Samsung Electronics Daewoo Nomura Hutchison Telecomm. LG Group Sony Toyo Ink Hyundai Acer Computers Sumitomo Trading Fuji Honda

77. Doing Business In Israel IMD World Report 2004 (Examples) 4th3rd2nd1stCountry Rank ILE-DE FRANCE FINLANDSWEDENISRAEL Total Expenditure on R&D as Percentage of GDP ITALYHONG KONGLUXEMBURGISRAEL Number of Mobile Telephone Subscribers per 1000 Inhabitants MALAYSIACANADAISRAELDENMARK Total Public Expenditure on Education as Percentage of GDP SWITZERLANDSINGAPOREISRAELFINLAND University Education Meets the Needs Economy JAPANTAIWANISRAEL HONG KONG Consumer Price Inflation – Average Annual Rate Source:Institute for management development World Competitiveness Yearbook- 2004

78. Doing Business In Israel Entrepreneurship Index Source: IMD - Institute for Management Development, World Competitiveness Yearbook- 2004/5

79. Doing Business In Israel Technology Leadership Thanks to quality education, Israel is one of the most advanced countries in the world. … Israel is advancing in high-tech even more than other developed countries Bill Gates, CEO Microsoft, World Economic Forum, Davos, January 2000 ” “

80. Doing Business In Israel Technology Leadership (cont.) “ Israel’s market is relatively large and sophisticated, it boasts the world’s greatest per capita number of engineers, scientists and doctors. The Israeli economy is simply a reflection of the country’s greatest natural resource - which is the brainpower and ingenuity of its citizens Mike Zafirovski,COO,Motorola 2003 ”

81. Benefits and Investments

82. Main Economic Structural Reforms Launched and Planned by the Government Next Stage: Public sector reduction Deep reform of the tax system- in process Government expenditures reduction Privatization policy: energy, transport and communication sector Further steps to reduce the public sector Structural reform of the capital market Structural reform of the education system Further steps in the privatization policy

83. Benefits and Investments Government R&D Incentives Source: Ministry of Industry Trade and Labor The Law for the Encouragement of Industrial R&D supports R&D projects of Israeli Companies by offering conditional grants from 20%-50% of the approved R&D proposal Israel is a participant in the Sixth Framework Program for R&D of the European Union, the only non-European Associated State, fully participating in the program.

84. Benefits and Investments Government R&D Incentives (cont.) Source: Ministry of Industry Trade and Labor The Global Enterprise R&D Cooperation Framework encourages cooperation in industrial R&D between Israel and multi-national companies (MNCs).

85. Benefits and Investments Benefits for Foreign Investors To qualify for these programs the company must be internationally competitive The Law for the Encouragement of Capital Investments offers investors both investment grants and tax benefits

86. Benefits and Investments Benefits for Foreign Investors (cont.) Grants program- Investment Grants of 24% of the approved program in Priority Area A and 10% in Priority Area B + corporate tax benefits for foreign investors at a rate of 10%. Automatic Tax Benefits Programs – offering foreign investors a complete tax exemption when investing in Priority area A for a 10 year period or alternatively a 10% corporate tax rate when not located in a Priority area.

87. Benefits and Investments Benefits for Foreign Investors – Investment Grants (%) (Grants as a percentage of investments in fixed assets included in the Approved Enterprise Plan) 10%24% Industrial Projects (Up to 140 Million NIS) ---15%Other Tourist Enterprises 10% Priority Area “ B ” 24% 20% Priority Area “ A ” Industrial Projects (Above 140 Million NIS) Investment in Hotels Source: Investment Promotion Center

88. Benefits and Investments Investment in Technologies (M$) Source: Earnest and Young, October 2004 According to foreign investors, the Silicone Valley, Boston, Texas and Israel are the main centers to search for new high technology investments Q1-Q3 2004

89. Israel’s Free Trade Agreements Benefits and Investments USA (1985) EFTA (1992) Jordan (1995): Bilateral Trade Agreement Canada (1997) Turkey (1997) Mexico (1999) Romania (2000) European Union – Association Agreement 2000 Bulgaria (2002)

90. Avoidance of Double Taxation Agreements Belarus Belgium Brazil Bulgaria Canada China Czech republic Denmark Finland France Germany Greece Hungary India Jamaica Japan Luxembourg Mexico Norway Philippines Poland Romania Russia Singapore Slovakia South Africa South Korea Spain Sweden Thailand The Netherlands Turkey USA Benefits and Investments

91. Cooperation in Industrial R&D Agreements Belgium Canada China France Hong Kong Italy Netherlands Portugal Spain UK USA Benefits and Investments Singapore Ireland Sweden Finland Germany India Austria Korea

92. Protection of Investment Agreements Benefits and Investments Albania Argentina Armenia Belarus Bulgaria Croatia Cyprus Czech Republic El-Salvador Estonia Georgia Germany Hungary India Kazakhstan Korea

93. Protection of Investment Agreements Benefits and Investments Turkmenistan Ukraine Uruguay Uzbekistan QIZ Agreement Egypt Jordan Latvia Lithuania Moldova Poland Romania Slovakia Slovenia Thailand Turkey

94. International Organization* Membership: BIS | BSEC (observer) | CE (observer) CERN (observer) | EBRD | FAO | IADB | IAEA IBRD | ICAO | ICC | ICCt (signatory) | ICFTU IDA | IFAD | IFC | IFRCS (observer) | ILO | IMF IMO | Interpol | IOC | IOM | ISO | ITU | OAS (observer) OPCW (signatory) | OSCE (partner) | PCA | UN UNCTAD | UNECE | UNEP | UNESCO | UNHCR UNIDO | UPU | WB | WCO | WFP | WHO | WIPO | WMO WToO | WTrO | WTO * Economic Organizations Benefits and Investments

95. Business Contacts – Links Business Contacts With Israeli Exporters List of Israeli Trading Companies Israeli Government Portal Technology Directory

96. The Israel Export & International Cooperation Institute Efrat Cohen Economist Tel: +972-3-5142820/961 Fax: +972-3-5142852 E-mail: efrat@export.gov.il www.export.gov.il Adrian Filut Economist Tel: +972-3-5142994 Fax: +972-3-5142852 E-mail: filut@export.gov.il www.export.gov.il Editing: Alona Ron-Snir, Director Economic Department, IEICI Production: Hani Erez, Executive Media & Productions Unit, IEICI Published by: The Israel Export & International Cooperation Institute, 2005 For Further Information Please Contact: